April 2016

Yesterday, the U.S. House of Representatives passed the Defend Trade Secrets Act of 2016, the much-debated federal legislation that provides a civil right of action under the existing Economic Espionage Act of 1996 to prevent or redress a theft of trade secrets. The bill as reported to the House on April 26 is here. The legislation enjoyed strong support from legislators of both political parties and major business trade organizations, passing the Senate unanimously and the House 410-2. The bill authorizes a trade secret owner to file suit in U.S. District Courts for injunctive relief and damages and, most controversially, provides for seizure of the trade secret via an ex parte proceeding upon specific findings by the court, including immediate and irreparable injury, under “extraordinary circumstances.” In the event of such seizure, a hearing must be held on notice within seven days. In theory, the legislation could help to harmonize trade secret law on a national basis, but the bill expressly disclaims any preemption of state law, thereby layering this new federal right of action atop existing state-law causes of action for trade secret misappropriation. President Obama is expected to sign the legislation.

The Fifth Circuit held that the monetary amount sought in the underlying arbitration, not the amount of the arbitration award, determines the amount in controversy for purposes of diversity jurisdiction to confirm an award under the Federal Arbitration Act (FAA). Pershing LLC v. Kiebach, No. 15-30396 (5th Cir. April 6, 2016). Investors in an alleged Ponzi scheme brought an arbitration against their broker seeking $80 million in damages, but the arbitration panel awarded only $10,000. The broker then moved to confirm the award under the FAA. The investors moved to dismiss, arguing that the federal court lacked diversity jurisdiction because the amount of the award was below the $75,000 threshold for diversity jurisdiction. The district court denied the motion to dismiss and the Fifth Circuit affirmed, concluding that measuring the amount in controversy by the amount of the arbitration demand recognizes the true scope of the dispute between the parties and measures the amount in controversy in the same way as if the dispute were being litigated.

Our friends and fellow bloggers on Jenner & Block’s Corporate Environmental Lawyer blog have published an Earth Day series, covering a number of topics of relevance to businesses. Take a look at these informative Earth Day-related posts!

The theme for Earth Day 2016 is Trees for Earth. In anticipation of the 50th anniversary of Earth Day in 2020, planting trees is the first of five major goals that will highlighted in each of the next five years. The Earth Day Network challenges the world to plant 7.8 billion trees by 2020.

On April 19, 2016, the Ninth Circuit affirmed the denial of class certification in a suit brought by consumers alleging that Epson misled purchasers of its inkjet color printers. The consumers alleged that Epson had represented that a user need only replace the color that was empty when it ran out of ink, but that the entire printer cartridge actually needed to be replaced as the printer would not print black and white copies after any color ran out. The putative class consisted of everyone who had purchased the printers in question since 2005, and the complaint alleged causes of action under California’s Unfair Competition Law and False Advertising Law. The district court refused to certify the class, finding that common questions of law and fact did not predominate. In a summary opinion, the Ninth Circuit affirmed, holding that in a “case of this nature, one based on product labeling, advertising, and the like, it is critical that the misrepresentations be made to all of the class members.” The court noted that the evidence did not support a finding that all members of class saw or otherwise received misrepresentations regarding the replacement of color cartridges. Indeed, the record showed that some consumers who bought the printers online would only have seen the alleged misrepresentation when the package later arrived in the mail, and therefore there was no causal connection between the purchase of the printer and the alleged misrepresentation. The court also rejected the plaintiff’s claim that it should have sua sponte redefined the proposed class, holding that “the burden of proposing a narrower class was [the plaintiff’s], and not that of the district court.” Finally, the court held that although the district court erred in characterizing the failure of proof as a lack of standing rather than a lack of causation, it would nonetheless affirm the decision to deny class certification because the decision was otherwise correct. The case, which was filed more than five years ago, returns again to the district court.

On April 29, 2016, the Supreme Court will consider whether to grant the certiorari petition in POM Wonderful et al v. Federal Trade Commission (15-525), which asks the Court to identify the standard of review applicable to agency decisions that prohibit truthful, yet allegedly misleading, advertising. The case arises out of an FTC complaint filed against POM claiming, among other things, that certain POM ads misleadingly implied that pomegranate juice was a scientifically-established treatment for disease. An administrative law judge determined that a subset of the challenged ads contained this implied message, but the full Commission later banned a substantially larger group of ads, concluding that these ads made implied, misleading claims. On appeal, the D.C. Circuit deferred to the FTC’s determination and upheld the ban, rejecting POM’s argument that—to safeguard POM’s First Amendment rights—the court should have reviewed the Commission’s decision de novo.

Earlier this week, the Eighth Circuit reversed the lower court’s certification of a class of Best Buy Co., Inc. shareholders alleging, in a Rule 10b-5 securities lawsuit, that Best Buy executives made misleading statements that artificially inflated the stock price. The statements were contained in an 8 AM press release, and then confirmed during a 10 AM analyst call. The Eighth Circuit found that Best Buy met its burden of showing that the statements made during the analyst call had no impact on Best Buy’s stock price. In doing so, the Eighth Circuit became the first Court of Appeals to grapple with the Supreme Court’s decision in Halliburton Co. v. Erica P. John Fund, 134 S. Ct. 2398 (2014), which gives defendants the right to rebut the fraud-on-the-market presumption of reliance with evidence at the class certification stage showing the misstatement had no price impact. The Eighth Circuit found that the “district court ignored [the fact] that defendants did present strong evidence on this issue.” The evidence came from plaintiffs’ expert, who admitted that the statements made during the analyst call did not elevate, but had only “fraudulently maintained,” the share price. The price had already risen following the earlier press release. However, the statements in the press release were deemed forward-looking and, accordingly, non-actionable thanks to the Private Securities Litigation Reform Act’s safe harbor. The evidence showed that the analyst call two hours later had no immediate price impact, severing any causal link between the representations during the call and the stock price at which plaintiffs purchased. Thus, plaintiffs could not satisfy the predominance requirement of Rule 23(b)(3).

The U.S. Food and Drug Administration (FDA) has proposed limiting the amount of inorganic arsenic allowed in infant rice cereal to 100 parts per billion (ppb). This action is consistent with the level set by the European Commission (EC) for rice intended for the production of food for infants and young children. Rice cereal is a leading source of arsenic exposure in infants. The FDA testing found that the majority of infant rice cereals currently on the market either meet, or are close to, the proposed action level.

The family of Ed Napleton, owners of three car dealerships in Illinois and Florida, sued Volkswagen in Chicago federal court on behalf of themselves and other franchise dealers similarly situated in connection with the VW emissions scandal. According to the complaint, the Napleton family opened its first car dealership on the south side of Chicago in 1931, and now owns more than 50 dealerships in 30 different locations in five states. Napleton purchased his first VW dealership in September 2015. Only three days later, the EPA issued its Notice of Violation and announced that VW had admitted that it had used a defective device on 11 million cars worldwide. The complaint alleges that “VW has engaged in policies with respect to franchise dealers that are in direct conflict with federal law designed to protect car dealers from unfair practices by vehicle manufacturers, as well as various franchisee protection laws of several states, causing direct and measurable harm to Plaintiffs. In addition to the their (sic) claims on behalf of all Volkswagen franchise dealers nationwide, Plaintiffs, on behalf of the Volkswagen franchise dealers located in Florida and Illinois, seek damages and injunctive relief under applicable state franchise protection laws.” The Napleton class action lawsuit, the first to be filed on behalf of franchise dealers according to Napleton’s counsel, is in addition to the more than 600 lawsuits currently pending before U.S. District Judge Charles Breyer in San Francisco. Judge Breyer has been asked to approve three different classes: a consumer class, a reseller class and a class of non-Volkswagen dealers.

In a recent article published in the Daily Journal, Partner Mary Ellen Callahan and Associate Emily A. Bruemmer explore a recent Federal Trade Commission complaint against Lord & Taylor. At issue was the department store’s “Design Lab” collection promotion, which featured social media and paid “fashion influencers,” without disclosing that they had been paid to endorse the product. The FTC alleged that Lord & Taylor deceived customers by paying “fashion influencers” and a publication to promote the new collection, but the endorsements did not feature any disclosures about the payment. “The enforcement action demonstrates the pitfalls awaiting companies that seek to attract online buzz without a thorough understanding of how social media marketing can lead to charges of unfair or deceptive trade practices,” the authors observe. The article is the latest installment of Ms. Callahan’s regular Privacy and Information Governance (PIG) Tales column in the Los Angeles and San Francisco Daily Journal.